The company said in a trading statement on Tuesday that it has experienced some further cost pressure, largely as a result of delays caused by bad weather, which is likely to increase the exceptional cost related to the ill-starred project in the current financial year.
The road project was a joint venture between Galliford Try, Balfour Beatty PLC (LON:BBY) and Carillion; the latter’s collapse left Balfour Beatty and Galliford Try holding the baby and prompted Galliford Try to raise £150mln to cover the additional costs of the bypass.
Galliford Try said the amount by which the exceptional charge will rise will depend on progress recovered through the summer and is expected to be lower than the charge (£25mln) taken in the first half of the financial year.
“We are continuing to discuss several significant claims. Practical completion of the project is anticipated this summer,” said Peter Truscott, the chief executive of Galliford Try.
Notwithstanding the curse of Carillion, things seem to be proceeding reasonably well for the group, with the Linden Homes sales rate running at 0.71 units per site per week in 2018.
Truscott said the board expects the division to report further improvement in margins this financial year.
The Partnerships & Regeneration division is also expected to report margin improvement in the second half, driven by market demand, contract wins and the division’s geographical expansion.
“Construction's underlying performance continues to improve, while continuing to work through diminishing outstanding legacy contracts. The business is seeing a good level of new project wins and opportunities on its multiple frameworks, whilst maintaining its disciplined approach to bidding,” Truscott revealed.
“Cash continues to be well managed, and average net debt has been below the guided figure of £275mln (excluding the additional cash raised),” he added.
Despite the continuing problems with the Aberdeen by-pass, the group’s operating outlook is unchanged and the board expects the full-year results will be in line with the current range of analysts’ expectations of underlying profit before tax of somewhere between £138mln and £146mln.
Liberum Capital Markets said the main point from the trading update was that management is confident full-year expectations will be met.
“It is especially encouraging that Linden's margins continue to improve; however, management has warned of another exceptional on the Aberdeen road, but at less than £25mln it is small, and management says the road will be complete in summer and that ‘several significant claims’ are being pursued,” the broker noted.
“Now that the road is almost complete, the market should focus on the improvement story in Linden and the growth in Partnerships & Regeneration,” it said, as it reiterated its ‘buy’ recommendation and 1,116p target price.
“The price to book multiple of 1.7x is not much less than the sector (2.0x), but its return on equity is stronger than the sector given the enhancement to returns from Partnership & Regeneration and Construction,” Liberum observed.
“We believe that there is further re-rating to come,” it opined.
Shares in Galliford Try edged up a halfpenny to 973p in the morning trading session.
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